5. Selling online

Assessing the competitive impact of
online sales restrictions – business practices at risk of investigation in 2017

E-commerce has become a vital mode of
distribution, opening new markets for many businesses. Authorities are,
however, still working through a wide range of enforcement issues.

Technological developments continue to
bring new challenges, as illustrated by recent cases where price-fixing for
posters and frames sold through Amazon was carried out by a computer algorithm.

Continued enforcement activity can be
expected in 2017 around the world and perhaps increased clarity as to where the
frontier between legal and illegal sales restrictions lies.

Online selling and the EU single market: a
powerful driver of policy

E-commerce sales in Europe present many
traps for the unwary, not least because of the continuing strong EU political
drive to create a single market across Europe. To complicate matters further,
in recent years enforcement has occurred predominantly at national level, with
different European national agencies approaching some of the issues in
different ways, most notoriously in the Hotel Bookings cases.

But the European Commission is now much
more active and can be expected to provide legal clarity on a number of issues
in the next year or two. Its sector inquiry into online commerce will conclude
early next year, and it has already identified a number of online business
practices that may restrict competition both for consumer goods and for
distribution of digital content. It has warned of further investigations of
these practices, which include selective distribution networks that exclude or
restrict online sellers, restrictions between manufacturers and retailers
relating to resale prices, restrictions on cross-border sales or use of online
marketplaces, and long copyright licences that may limit entry of new or
smaller players.

Resolution of the European Commission’s
case on Amazon’s e-book distribution arrangements (see below) is expected soon,
and it has proposed controversial legislation that would prohibit certain
online barriers to cross-border internet selling. The European Court of Justice will also be
contributing to increased legal clarity in the area when it rules in the Coty
case on the legality of online platform bans in selective distribution systems.

Diverging national approaches in Europe to issues such as price parity and platform bans have created an increasingly complex regulatory environment for e-commerce players to navigate. Over the coming years we expect more enforcement by the European Commission and decisions by the European courts which will help to clarify and harmonise the legal framework.

Sascha Schubert, Partner, Brussels

Asia: e-commerce coming into focus

In Asia, the number of antitrust
authorities has grown rapidly, as has online buying and selling, especially in
China, and many of those authorities are aware of the potential competition law
issues raised by e-commerce. They are starting to develop policy, and are
looking at much the same practices that interest European enforcers.

In China,
no cases have been made public, but it is believed that the authorities may have
looked into ‘most favoured nation’ clauses (MFNs) in the hotel bookings market.
Online selling, including mobile-payments systems, is enormously important to
the economy and is likely to be an antitrust policy priority: last year,
China’s Ministry of Commerce (MOFCOM) announced measures to enable faster
adoption of laws on online retail. In addition, the two other Chinese antitrust
authorities warned online marketplace platforms against a wide range of
behaviours including restrictions on using rival platforms, and the State
Administration for Industry and Commerce (SAIC) has also said it would be
stepping up enforcement in this area.

In Hong Kong, the antitrust regime is
still new but there have already been calls for the authority to look into the
conduct of powerful e-commerce platforms. The Japanese Fair Trade Commission is
looking into restrictions placed on online sellers by Amazon, and in Singapore
there has been a focus on exclusive agreements in online food delivery.

In Asia, as elsewhere, antitrust enforcers are interested in e-commerce; certainly in China, where both business and consumers do a huge amount of shopping by internet, but a number of other Asian authorities are also looking at intervention in this area.

Alastair Mordaunt, Partner, Hong Kong

The US is another country

Online sales restrictions is one of those
areas where US counsel will need to take into account the very different
approach in Europe and other parts of the world. Producers and suppliers in the
US are used to relative freedom in the way they get their goods and services to
the ultimate user. Provided the business in question does not wield market
power, almost any restrictive requirement or practice can be included in a
distribution system, if it does not involve agreement or collusion between
competitors.

This means that US enforcers tend to
focus on e-commerce infringements with a horizontal element. In recent
proceedings co-ordinated between the DOJ and the UK’s CMA, the DOJ brought
criminal antitrust proceedings and the CMA imposed a fine for an online
price-fixing cartel concerning posters and frames sold through Amazon. A novel
feature of this case was that a computer algorithm had been set up to
co-ordinate changes in price so as to maintain the cartel without ongoing human
intervention. Similarly the E-books case in the US was essentially a question
of whether or not there had been collusion between competing publishers,
whereas the European Commission extracted a number of commitments based on
vertical concerns.

A little more care is needed around
resale price maintenance (RPM). In the US, at federal level RPM is generally
evaluated under the ‘rule of reason’, or a balancing of pro- and
anti-competitive effects, meaning that in the absence of market power RPM will
not normally raise antitrust issues. But several states have enacted contrary
legislation, or their state courts have continued a ‘per se’ approach,
presenting a concern if a company wants to adopt a national distribution and
pricing policy.

US counsel need to be aware that the European approach to restraints in distribution and supply chains is much stricter than the ‘light touch’ they are used to in the US.

Terry Calvani, Of Counsel, Washington DC

Hot topic: ‘most favoured nation’ clauses

MFNs will remain an enforcement focus
across much of the globe in 2017 and beyond. The European Commission is
investigating Amazon’s contracts with e-book publishers, which include
requirements that publishers inform Amazon about more favourable or different
terms offered to Amazon’s competitors and make them available to Amazon.
National enforcers in the EU continue to be active in this space too: the UK’s
CMA has just opened an investigation into online auction services, citing
suspicions of illegal pricing practices and restrictive clauses including MFNs
that may have excluded competitors. MFNs are also raising interest in Asia, as
mentioned above.

The Hotel Bookings cases illustrate the
very different attitudes in the US and elsewhere to MFNs. In the US, class actions
based on MFNs imposed on hotels by online booking platforms failed in the
absence of evidence of concerted action. In the EU, very similar factual
situations led to many national competition authorities requiring commitments
by the platforms to change the terms on which they contracted with hotels. But
even within the EU, authorities have taken different approaches, with Germany
banning these provisions outright, a stance significantly stricter than
elsewhere in Europe. And on top of that, in countries including Austria, France
and Italy the legislature has intervened, in some cases reversing the
settlement concluded by their national competition agencies. Ten national
agencies are together now carrying out research into the market effects of
their enforcement action and the results should be available early in 2017.

Looking ahead in 2017

Given the continued regulatory focus in
this area, businesses engaged in e-commerce are advised to examine
their practices closely:

to design compliance programmes to take into account the significant differences in approach between authorities in Europe, the US and Asia;

to ensure that those in the US know that EU and some other laws limit the ability of sellers to chart their own sales strategy and that e-commerce vendors doing business in Europe need to be very sensitive to these restrictions;

for global compliance, to consider whether the convenience of a ‘one-size-fits-all’ approach outweighs the benefits available from taking advantage of the lighter touch applied in some jurisdictions;

to make it a priority to review any European distribution contracts in the light of the findings of the EU e-commerce sector inquiry once these come out and keep up with other relevant EU developments, such as the proposed Regulation on online selling; and

to keep up with rapidly developing law and policy on ‘most favoured nation’ and other price parity clauses between retailers and marketplaces, as these may have far-reaching implications for businesses that either are subject to them or rely on them.